Know when the case for a corporate jet has wings

Casual onlookers and the media may knock the idea of a corporate jet, but some finance departments will see nothing but blue skies.
Corporate jet

The life of an executive, even under the best of circumstances, is an incessant buzz of activity, and adding to the stress are the hassles of business travel: the long-queue, stuck-on-the-tarmac, screaming-baby airport annoyances we all know and loathe. Even first class and private airline lounges might not offer adequate refuge. But what if you could rise above it all — literally?

For some companies, buying a corporate jet may be the solution, but it's not an easy process, and there's a notorious image of excess to consider. Company stakeholders and clients might wonder: Is a corporate jet really a way of doing business better? Or just a shiny new toy meant to pamper the C-suite?

"Corporate jets usually get a raw deal from the press," said Jeff Wieand, senior vice-president of Boston JetSearch in Bedford, Massachusetts, a consultancy in executive aircraft search and acquisition. "The truth is, for busy executives who travel a lot, a corporate jet is an enormously important business tool."

As for how popular that tool is, North America by far boasts the highest number of private jets: 13,775 as of the third quarter of 2017, according to JETNET data in Knight Frank's The Wealth Report. Next is Latin America (2,626), followed by Europe (2,580).

How do corporate jets prove their worth to a company — and the finance departments that approve their purchase and monitor operating costs? That depends, for as you'd well expect, this is not a one-wingspan-fits-all proposition. In fact, there are other options to consider besides buying a jet outright, from co-ownership to chartering to jet-specific debit cards that allow for flexible private air travel.

Thus, consulting an expert is essential, said David Lee, FCMA, CGMA. Lee previously spent more than 2½ years serving as the CFO of Stratajet, a London startup founded by a former military fighter pilot to create an e-commerce platform for finding and booking private jets online.

"First of all, I would recommend you appoint an adviser: someone who knows a CJ2 from a Falcon 7X," said Lee, who left Stratajet in December 2017. "They can advise on the differences, what you get for your money, and how to navigate the market."

What else do you need to know before you taxi down the runway to jet ownership? Here are four factors finance departments will want to consider as they take on the case for this big-ticket item.

Explore alternatives

Companies need to ask whether the objectives they seek to achieve through a private jet purchase can be realised in other ways. To begin with, consider the frequency of usage. "When it reaches the point you are doing 20—30-plus charters a year, only then does it make financial sense to look into purchasing and ownership," Lee said. If the number falls below that threshold, then it's time to look at other options.

You can charter a plane on an as-needed basis. "However, you are subject to market prices, and you'll spend time comparing pricing, reviewing contracts, arranging payments, and validating the actual operators meet your standards, so on-demand charter typically takes at least an hour or more of work for each trip," said Doug Gollan, editor-in-chief of Private Jet Card Comparisons, a website that tracks prepaid private jet travel from more than 250 programmes.

"You can buy a fractional share [of a jet] from somebody like NetJets or Flexjet, which is typically a three- to five-year commitment," Gollan said. "But you also know what you're getting in terms of price, product, and policies, such as how far in advance you need to reserve your flight." He also points to jet cards — a prepaid debit card for anytime-anywhere jet travel. They are offered in amounts from five to 100 hours, and users can join for less than $20,000, so there isn't the same long-term commitment of full or fractional ownership. You use your hours and then you are done, and some programmes offer refunds, he added.

"Very few folks go from commercial flights directly to whole ownership," Gollan noted. "Typically, they have some experience with charter, jet cards, or fractional ownership first."

Clock potential time savings

Even if you're flying first class, airports and commercial airlines can put you at the mercy of inefficiencies such as lost bags, backed-up runways, delayed flights, crew issues, and security screening lines. All of that can turn a tight itinerary into a turbulent squeeze.

"Private jets are a very effective and efficient use of time," Lee said. "They can get your executive teams to meetings on a schedule that suits you, as opposed to being restricted to commercial schedules where you can literally lose days waiting around for connections and flights."

List the competitive advantages

Owning a corporate jet particularly benefits companies located far from a major airport, said Scott O'Brien, senior director, government affairs at the National Business Aviation Association, a Washington, DC-based trade association for private and corporate jet owners.

"You need to quantify through a business case the productivity and efficiencies you gain," O'Brien said. He cited the example of a business based in Greenville, Mississippi, in the US, that is two hours by car from any commercial airport. "But they're able to compete on a global level because they can pick up people at the commercial airport, get them into the jet, and take them direct to Greenville and then to their showroom. Then, they can fly them back."

Of course, competitive edge must be weighed against what you'll spend — and that's a very, very wide range. As of 2017, the price for a new private jet ranged from $3 million to $90 million, according to Bankrate.com. While shopping, keep in mind that some airports can handle bigger private planes than others, so you'll want to assess the capacity of the airports you'll use most often.

Of course, the costs don't end with buying the plane. Hangars, maintenance, pilots, fuel, and more add up. For a midsize jet such as a Cessna Citation X, it can cost $3,000 a month for hangar space, $11,000 to fill up on jet fuel (good for roughly six hours' cruising time), and $215,000 a year to maintain a skilled flight crew, according to global figures cited by Aviation Voice.

Other considerations

For US companies, climbing into that cushy cabin means obeying Internal Revenue Service rules regarding a host of tax issues, including depreciation, deductible expenses, and fuel taxes. Companies in other countries will face similar and additional tax issues. A discussion of the tax implications of jet ownership is beyond the scope of this article, and companies should seek out expert tax advice when making a purchasing decision.

The decision to buy a jet may not be a matter of yes or no, but rather "eventually" or "not just yet". As any pilot worth their wings will tell you, taking to the skies requires serious study, smart charting, and a cool head. In their own brand of navigation, finance departments should be no less diligent before they clear a private jet for takeoff.

Lou Carlozo is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Chris Baysden, an FM magazine associate director, at Chris.Baysden@aicpa-cima.com.